If you are trying to apply for a personal loan, do research before signing any documents. There are two types of personal loans. You can apply for a secure loan which means you have collateral. When you apply for a loan without collateral, it is an unsecured loan. Here are six vital facts for you to learn about personal loans.
First, decide how much money you need to borrow. Review your budget. Do not borrow too much money. For example, you might put in a request for $500 or $100,000. Make sure you can afford the monthly payment. Also, calculate the total amount that you will repay to the lender.
Finance and Interest
Next, the borrower might not understand the finance and interest charges. Find out what is the interest rate. For instance, you are applying for a $10,000 loan. If your loan is at 15% for 60 months, you will repay the lender $14,273.90. The same loan at 5% is $11,322.74. Try to find the lowest interest rate. This strategy will reduce the repayment amount to the lender and save you money.
Penalties and Fees
Moreover, lenders charge fees for personal loans. If you do not make a payment, the lender will place a fee on the billing statement. A bank can charge you if the payment is late. For example, John’s loan is due on the first day of the month. John pay the bank after the due date. The bank place a $50.00 fee on John’s account.
Read the loan papers to see the late payment fee. When you borrow money, find out what is the cost if you repay the loan before the maturity date.
Hardship or Default
Then, there are times when the borrower may face a hardship or default on a loan. You need to know what will happen in both cases. Keep in mind that financial institutions have different loan policies. You might lose your job or get sick. How will you repay the loan? During a hardship, your other financial obligations may stop you from repaying the loan. After a specific number of days without a payment, your account is in default.
Credit Report and Credit Score
The bank will check your credit when you apply for a personal loan. Your credit score can help you get a better interest rate. Avoid having too may companies running a credit report in your name at one time. Also, check your report before applying for a loan. Credit bureaus do make mistakes, and they may receive the wrong information in your file.
Insurance and Personal Information
Finally, it is a smart move to get insurance on a personal loan. Insurance payments will pay the loan off if you die or can no longer work. Call the lender and ask if this service is available. Also, find out how does the bank use your personal information. You do not want your personal information to get in the wrong hands.